DM has no power to adjudicate upon Sec 14 DM application under SARFEASI

Whether the DM or Chief Metropolitan Magistrate has any power to give notice or call the borrower or any  3rd party to decide the secured creditor’s application under Section 14 of SARFAESI Act, 2002 ?

Recently I appeared before one of the DM’s on the behalf of the banks application under section 14 of the SARFEASI Act. In every case the DM has called the borrower by issuing the notice to him to appear on the said date. To my utter surprise it was totally contrary to the law. There are numerous judgement of the Hon’ble Supreme Court and various Hon’ble High Courts which says that DM has no business to adjudicate upon the application under Section 14 of the SARFAESI Act.

Section 14 provides for taking assistance of the DM or CMM in the process of taking possession of the secured assets of the borrower/guarantor by the secured creditor under sub-section (4) of Section 13 of the Act. The secured creditor is competent to take possession of all the secured assets of its own following the procedure laid down under Rule 8 of the Security Interest (Enforcement) Rules, 2002. Only when secured creditor finds difficulty to take possession of the secured assets, it may take assistance of DM or CMM under Section 14 of the Act. The measures taken under Section 14 amount to measures taken under Section 13(4) of the Act.

Once a notice is issued to the borrower under section 13(2) and he fails to comply with the notice within the stipulated period, in view of clause (a) of sub section (4) of section13, the secured creditor is entitled to take possession of the secured assets of the borrower. The only thing which the secured creditor is required to do is to make an application in writing to the DM or CMM.

The Division Bench of Hon’ble Bombay High Court has clearly held in Trade Well Vs. Indian Bank case that the role of the DM or CMM as the case may be, as envisaged under section 14 of the SARFAESI Act is only with a limited jurisdiction. At the time of passing order the DM will have to consider only two aspects. He must find out whether the secured falls within his territorial jurisdiction or not and whether notice under section 13(2) of the Act is given or not. During my further research on this point I came to the conclusion that DM or CMM has no power to adjudicate of any kind  upon section 14 application at any stage.

If two conditions stipulated in section 14 are satisfied, then the DM or CMM has no other option but to take steps for taking the possession of the secured assets and documents relating thereto and forward such assets and documents to the secured creditor. It is important to mention here that no element of quasi judicial functions are to be performed by the DM or CMM while exercising powers under section 14, but he is only required to perform act of executionary nature in taking possession and delivering it to the secured creditor.

Gaurav Goel, the banking lawyer in Chandigarh says that the DM or CMM cannot take the role of the Debt Recover Tribunal or Hon’ble Courts and start examining   as to which of the measures prescribed under section 13(4) should have been resorted to by the bank. The bank has several options and it is left absolutely to their discretion to exercise one or more options available under the provisions. The DM does not have the jurisdiction and power to determine the manner in which the secured creditor should exercise their statuary rights.

The DM has also not been empowered to adjudicate or examine the rights of the parties. He is only required to verify the existence of facts attracting power under section 13(4) of the Act. It is only the factual verification that can be made by the DM. For example, the existence of equitable mortgage wherein he will be required to verify whether there is a document of equitable mortgage and whether the original title deeds are deposited with the bank or not. Similarly, whether the notice under Section 13(2) has been served upon the person concerned or not, whether any reply or objection is raised or not etc.

In Standard Charted Bank vs. Noble Kumar The Apex Court has observed that there is no power vested in the DM to adjudicate upon any issue of any kind pertaining to the secured assets. Vesting the said jurisdiction in DM would amount to re-writing the provisions of Section 14 which is impermissible in law. The Hon’ble Supreme Court further held that the satisfaction of the DM contemplated under the second proviso to section 14(1) necessarily required the Magistrate to examine the factual correctness of the assertions made in such affidavit but not the legal niceties of the transactions.

With the hope that this self-styled start-ups of DM’s will be curtailed….

Gaurav Goel is the lawyer at Punjab & Haryana High Court and is the president of Progressive Lawyers Forum of Punjab & Haryana High Court.  

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